Microsoft takes aim at Google’s search dominance with AI-powered Bing

Microsoft’s use of the AI used in ChatGPT to disrupt the internet search market is set to demolish the high profit margins that have underpinned Google’s core business, chief executive Satya Nadella predicted on Tuesday.

“From now on, the [gross margin] of search is going to drop forever,” Nadella said in an interview with the Financial Times. He was speaking as the software giant unveiled an overhaul of its Bing search engine to incorporate AI advances sweeping through the tech world since the launch of ChatGPT more than two months ago.

The launch came the day after Google scrambled to make up lost ground since the launch of ChatGPT, which provides text answers to complex questions directly rather than requiring the use of a traditional search engine. Google said it would launch its own chatbot and add AI features to its search engine, but did not show off any of its technology or say when it will be widely available.

The use of language AI to supplement or even replace internet searches has raised the prospect of sharply higher costs for search companies. Nadella said he was willing to accept any “demonetisation” of the search business, where Microsoft last year earned $11bn of revenue, for the chance to eat into Google’s business.

“There is such margin in search, which for us is incremental. For Google it’s not, they have to defend it all,” he added, referring to the competition against Google as “asymmetric”.

Google’s delayed response to ChatGPT has left Microsoft with a rare chance to claim a technological edge when the search market is facing its first big changes for years. Microsoft said its search overhaul was based on a new version of the language AI system developed by OpenAI, the San Francisco AI research group in which it recently announced a “multibillion-dollar” investment.

Nadella acknowledged that Google would introduce its own AI-powered search products, calling it the “800-pound gorilla” and that users would have to decide which product they preferred.

Microsoft poured billions of dollars into challenging Google in the early days of search but could not make a dent in its dominant position. According to Statcounter, Bing accounts for only 3 per cent of global searches, compared to 93 per cent for Google.

Microsoft on Tuesday showed off a new version of Bing that it said would be available immediately to anyone using a desktop computer, though only for “a limited number of queries”. The overhaul includes a box running down the right-hand side of search results pages that seeks to draw information out of web pages returned in a search.

It also includes a chatbot, similar to ChatGPT, that can create travel itineraries or compare products, and a creation tool to generate emails and shopping lists based on search queries.

Nadella claimed the changes marked the start of a new “race” in the internet search market that would disrupt “the largest software category on planet earth”.

“It’s a new day in search,” he said. “Rapid innovation is going to come, in fact a race starts today.”

Microsoft said that after their initial searches on the new system, Bing users would have to join a waiting list to get what it called “the full experience” of the service. It also said it planned to launch a mobile version and expand the service “to millions of people in the coming weeks”.